Sidebar: Separating the Good From the Great

Can a good company become a great company? How? It took Jim Collins and his team of researchers 5 years to come up with the answers: 11 companies made the leap from good to great and then sustained those results for at least 15 years. How great was great? The good-to-great companies averaged cumulative stock returns 6.9 times the general market in the 15 years after their transition points. The actual screening-and-selection process was a rigorous one. The criteria were:

1. The company had to show a pattern of good performance, punctuated by a transition point, after which it shifted to great performance. "Great performance" was defined as a cumulative total stock return of at least three times the general market for the period from the transition point through 15 years.

2. The transition from good to great had to be company specific, not an industrywide event.

3. The company had to be an established and ongoing enterprise -- not a startup. It had to have been in business for at least 25 years prior to its transition, and it had to have been publicly traded with stock-return data available for at least 10 years prior to its transition.

4. The transition point had to occur before 1985 to give the team enough data to assess the sustainability of the transition.

5. Whatever the year of transition, the company had to be a significant, ongoing, stand-alone company.

6. At the time of its selection, the company still had to show an upward trend.

The study began with a field of 1,435 companies and emerged with a list of 11 good-to-great companies: Abbott Laboratories, Circuit City, Fannie Mae, Gillette Co., Kimberly-Clark Corp., the Kroger Co., Nucor Corp., Philip Morris Cos. Inc., Pitney Bowes Inc., Walgreens, and Wells Fargo.

The next step in the study was to isolate what it took to make the change. At this point, each of the 11 good-to-great companies was paired with a comparison company -- a company with similar attributes that could have made the transition, but didn't.

Then the research began. Collins and his team reviewed books, articles, case studies, and annual reports covering each company; examined financial analyses for each company, totaling 980 combined years of data; conducted 84 interviews with senior managers and board members of the companies; scrutinized the personal and professional records of 56 CEOs; analyzed compensation plans for the companies; and reviewed layoffs, corporate ownership, "media hype," and the role of technology for the companies. The findings are contained in Good to Great: Why Some Companies Make the Leap ... And Others Don't (HarperBusiness, 2001).

Sidebar: Great Answers to Good Questions

Fast Company: The CEOs who took their companies from good to great were largely anonymous. Is that an accident?

Jim Collins: There is a direct relationship between the absence of celebrity and the presence of good-to-great results. Why? First, when you have a celebrity, the company turns into "the one genius with 1,000 helpers." It creates a sense that the whole thing is really about the CEO. At a deeper level, we found that for leaders to make something great, their ambition has to be for the greatness of the work and the company, rather than for themselves. That doesn't mean that they don't have an ego. It means that at each decision point -- at each of the critical junctures when Choice A would favor their ego and Choice B would favor the company and the work -- time and again the good-to-great leaders pick Choice B. Celebrity CEOs, at those same decision points, are more likely to favor self and ego over company and work.

FC: Like the anonymous CEOs, most of the good-to-great companies are unheralded. What does that tell us?

JC: The truth is, few people are working on the most glamorous things in the world. Most of them are doing real work -- which means that most of the time they're doing a heck of a lot of drudgery with only a few moments of excitement. The real work of the economy gets done by people who make cars, who sell real estate, and who run grocery stores or banks. One of the great findings of this study is that you can be in a great company and be doing it in steel, in drug stores, or in grocery stores. No one has the right to whine about their company, their industry, or the kind of business that they're in -- ever again.

FC: Let's say that I'm not running a company. How do the good-to-great lessons apply to me?

JC: The basic message is this: Build your own flywheel. You can do it. You can start to build momentum in something for which you've got responsibility. You can build a great department. You can build a great church community. You can take every one of these ideas and apply them to your own work or your own life.

FC: What does your research suggest about the best way to respond to the current economic slowdown?

JC: If I were running a company today, I would have one priority above all others: to acquire as many of the best people as I could. I'd put off everything else to fill my bus. Because things are going to come back. My flywheel is going to start to turn. And the single biggest constraint on the success of my organization is the ability to get and to hang on to enough of the right people.

Web-Exclusive Interview: Good Questions, Great Answers